BLOG 8: OLYMPUS: 1.7 BILLION DOLLAR FRAUD

        The documentary amazed me with the fact that a company top management was able to hide the losses of $1.7 billion for nearly 20 years without any opinion from their Big4 auditors who are famous for their reputation in the “accounting profession”. There is no doubt that there was the failure in corporate governance in Olympus, which had originally been a sound company, with the involvement of the President who instructed the company Finance Directors to hide all the losses away from public reports. It was really ashamed for the Japanese when the whistleblower for the biggest fraud for their country is a Britain who was portrayed as the victim in the show. I would have no comment on how Woodford being badly treated and bullied at Olympus. However, the way he explains make me realizing some things bad in the Japanese culture which enables the man in the highest position to deliver ultimate decision which has to be always followed by the lower level.

        The fraudulent amount is undeniably material (accounting for 13% of total assets, 81% of net worth, 16% of total revenue, and 18 times net income). And again, auditors appeared to be unable to fulfil their role as the “watchdogs” for the public. It was really ridiculous when dozens of auditor teams from KPMG, E&Y and Arthur Andersen was doing nothing from receiving the audit fees and signing on the audit report that had no value to the public at all. This makes me question the competence and independence of qualified accountants who spent their whole life for the “Debit” and Credit” and by all-time consider the highest risk is the risk of unable to collect money from their clients. From my point of view, the tricks applied by Olympus are complex but not too sophisticated for the auditors with strong skepticism to find out. The Olympus scandal also renews long-standing questions about the structure of audit firms, which brand themselves as global networks but in fact are made up of legally separate firms to limit liability when one member gets in trouble.

BLOG 7: 1929: THE GREAT CRASH

       The documentary allows me to understand the feeling amongst investors in the Greatest Crash 1929 when the New York Stock Exchange started to plunged after give year of constantly growth. While no one can find out what was going on with the market, the market gains of five years were wiped out. I can feel the panic of investors at that time who attempted to get out of the market by selling out all of the stocks leading to the historic market crash. The panic reactions of investors in 1929 can be called as the irrational exuberance which was clearly described by Shiller (2015).

       There was no single, dominant cause, and that many factors worked together to bring the market down. However, the primary cause for this disaster is the lack of financial regulation environment which allowed banks to lend freely. As the consequences, there was no protection from the government for investors who lost it all in the economic collapse. Up to now, there has been many regulations that was effective set by the policy makers. Regarding to the Federal Reserve, they should have that using monetary policy to restrain investors’ exuberance may have broad, unintended, and undesirable consequences. The regulations put in place after the Great Depression helped limit the damage of the 2008 crisis, leaving us only with a Great Recession.

       From my point of view, there are some lessons I could learn from the Market Crash in 1929. Investors when participate in the stock market should obtain for themselves a specific stock investment plan alongside with the proper risk management and money management which could help trimming down the losses which can be covered by the profitable investments. In addition, it is necessary for investors to set the threshold of risk. They should not borrow the money for their brokers account. Indeed, when passing the acceptable risk level, people are not only more likely to fail but also create the negative impacts for the market as a whole.

REFERENCE

Shiller, R. J. (2015). Irrational exuberance. Princeton university press.

BLOG 6: MERCEDES GOES TO MOTOWN

        When learning about the successful and failure of mergers, the Chrysler's merger with Germany's Daimler-Benz which were done in May 1998 should be considered as one of noticeable example. With the total revenues up to $130 billion, this is the largest merger in the car industry history. In fact, it was in expectation of both company management that the merger would enhance the production efficiency and the ability to gain the competitive advantage in the industry that are having more large competitors. Big Mergers usually fall especially without the effective management. While the merger makes sense on paper when investors and management can feel the good combination between the strong R&D of Mercedes and the impressive sales productivity of Chrysler, this cross-border deal was poorly managed. Indeed, from the point of view of Chrysler workers, this was more like a takeover from the German giant.

        The most noticeable problem of the deal is that it caused the lost in its shareholders’ value. The consolidated entity decided to have headquarter in Stuttgart rather than New York without noticed in earlier negotiations. Falling out of S&P500, the company share price dropped drastically on the stock exchange causing the lost to its shareholders. Things became worse when the company reported the zero bottom line profit one year after the merger. Plainly, the goal for “smooth operation”, which is the key for success, was not achieved due to various cross-culture mismatches and extremely poor handling of the human impact. It can be realized that the deal ended up to be a selling deal of Chrysler to the German. Further losses and the market downturn led to the significant job losses in Detroit alongside with the widened in the power gap lead to the domination from the German side.

        Considering from the root, this merger was controlled by the German company for its own interest rather than the mutual interest for both sides. Essentially, the merger and the process after that were done following the agreement of two CEOs in a very short period. It would be more fruitful for the both sides as well as for the shareholders if everything was done with a well-managed and transparent procedure.

BLOG 5: INSIDE JOB

        I have read documents about the financial crisis, however, inside job offered me a very interesting point of view about the 2008 financial meltdown. Depressing but shocking true. It seems that the America economic system, which is always considered as being the most elite one, has been irretrievably corrupted. Like the name, the movies revealed the invisible but tight linkage between banks and higher reaches of the government, and to some extent the groves of academe. While banks CEOs can create for their banks the law convenient environment, the students in the business school are being taught extremely biased lessons which only focus on the companies’ interests. For long, the society can perceive the gap between the rich and the poor become widened with the world full of business leaders whose skills and knowledge are undeniably good but always work with a very bad ethical attitude.

        Many researchers agreed that deregulation was the main factor of the financial crisis. The financial industry was allowed too much freedom to act in their own interest and made millions of dollars at the cost of taxpayers and general public investments. However, considering from the root, deregulation was created by the objective economic contradictions of capitalism themselves. Unequivocally, the power of financial capitalism has been increased at the expenses of working population. The balance has so long been lost by the corruption and the lacks of ethics that capitalism has brought. Here I do not indicate that how good and bad the capitalism or democracy system can offer. We all know that the best practice should be at the balance point. I just want to notice that even though there has been calls for changes or reforms again and again, they will definitely lead to nothing as long as powers belong to group of people who are corrupted and only want to seek for the benefits for themselves.

BLOG 4: THE MADOFF HUSTLE

       Some may call Bernie Madoff, the man with no business ethical morality, as one of the cleverest crooks to ever grace wall street. Indeed, I have to admit that the way Madoff earned money from his investors was not easily done without the thorough understanding about the market and how to manipulate information to entice investors for capital. Especially, it really amazed me that this man was not just successfully maintain his Ponzi scheme for not just 4 or 5 years but for more than 15 years. He conned everyone brilliantly by promising the modest returns while pocketing their cash without investing it. Madoff took advantage of his naïve investors who have little knowledge about how the market actually works. So, would he be able to complete the same thing if his investors are people with strong financial and market knowledge?

       To some extent, I consider that investors can be called as “stupid” if they literally do not know anything about how their investments runs and just simply put their trust in the promised return guaranteed by the one who take control of their money. Of course, rational person would have easily comments that they will never be that stupid. However, facing the pressure from daily tough challenge, the world is now full of people who desperate to believe in some ways that can make them earn the income, which is higher than the bank interest rate, by just giving the money to someone or some companies with big promises.

       I have witnessed some people in my life that shared the same situation with the victims of Madoff’ fraud, losing all the possession and fortunes by putting their trust in the wrong place. Not many persons can have the adequate knowledge and experiences to deal with such clever criminal like Madoff. It would be better for all the investors to know that trust is a very rare thing in the financial world even with big companies or big name with showy reputation.

BLOG 3: RBS: INSIDE THE BANK THAT RAN OUT OF MONEY

       When making the record £ 21 billion takeover deal of NatWest in 2000, no one can expect that the Royal Bank of Scotland has to face its bailout in October 2008. Ironically, it has to admit that RBS is the company that knows how to wowed the public. Indeed, just 18 months after announcing the impressive profit of £ 10.3 billion, RBS set another record by reporting the loss of £ 24 billion which is the biggest loss in the UK corporate history. Through the video, we can totally sum up the underlying causes of the failure of RBS in one word: greedy. In fact, directly associated to the collapse of the bank is the former chief executive – Sir Fred Goodwin – who had to apology the company shareholders for forcing the company to spent too much for irresponsible deals that delivered no value to the shareholders. It is unacceptable for any RBS’s shareholders to know that the catastrophic €71bn takeover of ABN Amro was done only because Sir Fred Goodwin, with his obsession with his quest to make RBS a titan of world banking, wanted to stop Barclays getting their hands on it at any cost. Ridiculously, RBS takeover deal can be described as a suicide act that was triggered by the man that had the total power in the Boardroom.

       RBS ran out of money by paying too much for the company that was overpriced without considering the later consequences. This failure can be the typical example of the bad corporate governance with poor decision making process that allows the company to make such a significant action that plainly not around the balance between risk and growth. It is difficult to ensure that the RBS collapse would have been prevented under the better corporate governance as there were plenty of other factors were at play in the near-collapse of RBS. However, at least the trust in public would not be impaired significantly knowing that the bank itself went to collapse largely because of the greedy of just one person.  

BLOG 2: THE WORLDS GREATEST MONEY MAKER

      Most of everyone participate in the stock market are inspired by Warren Buffet, the iconic character in the investment field who is considered as the most successful investor in the 20th century. The CEO of Berkshire Hathaway consistently ranked among the top richest man on earth. As an amateur investor who spent sometimes on the stock market, trying to make abnormal returns, I was really eager to know about skills and method applied by Buffet to get billion dollars from the market.

   Buffet and his partners Charlie Munger always follow some fundamental rules in any investment. First, only making the investment in the business that you understand. If you follow the trend and pouring the money into the field that you have no experience and knowledge, you earned for yourself a very high possibility of failure. Secondly, business with intrinsic value will more likely to obtain the durable competitive advantage. To estimate the core value of a business, however, is not an easy task which requires considerable efforts on research and investigate. Thirdly, the management team should be associated with two important key values which are “integrity” and “talent”. Without talent, it will be difficulty for the team to achieve any outstanding result. Without integrity, the team can be considered as useless as at the end of the day their greedy will destroy everything. Lastly, only accept the price that is reasonable. The investor has to have his/her own senses on the price and should never go for the overvalued assets. It has to be noted that successful investors are the ones who are good at maintaining the calm attitude and follow their own rules and principles.

     I also cannot agree more with the suggestion made by Evan Davis about choosing the life style of Buffet notwithstanding you can become as rich as him or not.  In fact, Buffet choose the humble living style with regular standard. He also appears as being very famous for his philanthropy and generosity. As learnt from Buffett’s ‘Personal Value System’, I believed that the true value of each person can be seen by looking at the moral and ethical principles they follow.